Ground Breakers: Lithium pays off for IGO, powering battery metals producer to record dividend

IGO posts record dividend, massive profit as Greenbushes lithium deal pays off handsomely
Gold Road sets guidance of 340,000-370,000oz at Gruyere and awaits higher prices after clearing out of the money hedges
Silver Lake cops guidance downgrade at Canada’s Sugar Zone as costs rise

IGO’s (ASX:IGO) once controversial decision to sell its stake in the Tropicana gold mine and fund a $1.9 billion purchase of 49% of Tianqi’s Australian lithium assets has paid off handsomely, driving the miner to a record half-year profit.

IGO, which also owns the Nova, Forrestania and Cosmos nickel mines, saw profits lift 552% to $591m for the first half of 2022-23, with revenue up 43% to $541.7m.

That has backed a 14c per share interim dividend.

The payout is almost 1.5x larger than the 10c paid out over the whole of FY2022.

By way of comparison, IGO paid out just 1c as a half year dividend five years ago, and just 3c for the whole financial year, and has paid a total of 10-11c for the full year since.

The $12b miner’s net profit after tax for the second quarter alone was $338m, helped by a record $334m dividend from the Tianqi JV, which includes a roughly quarter stake of the Greenbushes lithium mine and a 49% share in a lithium hydroxide processing plant in Kwinana in Perth’s south.

Greenbushes, the largest and highest grade hard rock lithium mine in the world, delivered a record 87% EBITDA margin.

It delivered a 5% rise in spodumene concentrate production QoQ to 379,000t (740,000t for the half year, above guidance of 675-725,000t) and sales of 386,000t (up 14%) for the quarter and 724,000t for the half year.

IGO said the average realised chemical and technical grade spodumene price came in at US$3984/t, with EBITDA of $2.032b for the quarter and $3.65b for the half year and a low unit cost of $263/t, with half year costs of $258/t within its $225-275/t guidance range.

While technical grade prices weighed down sales, chemical grade prices tracked similarly to other spot-aligned lithium miners like Pilbara Minerals (ASX:PLS) and Allkem (ASX:AKE) at US$5957/t.

Fire douses Nova’s spark

The Nova nickel operations were another matter entirely, with a fire at its diesel power station causing an 18-day break in production during the quarter.

Output dropped 36% to 4229t, with first half production of 10,800t of nickel, 4758t copper and 387t cobalt well below half year guidance of 12,000-13,000t, 5500-6000t and 450-500t respectively.

Costs also rose 69% to $5.30/lb nickel, well above guidance of $2.6-3/lb, with sales revenue down 19% to $163m and underlying EBITDA down 25% to $98m ($230m for the half year) despite nickel and copper prices rising 6% and 10% respectively.

At Forrestania costs rose 26% to $10.97/lb, with half year costs of $9.80/lb above $7.50-8.50/lb guidance. Nickel units fell 7% to 2950t in the quarter with half year output of 6139t within year to date guidance of 5250-6250t.

Overall Nova guidance has been revised down, as expected, from 24-27,000t to 23,000-25,000t, with copper and cobalt output also expected to be lower and cash costs at Nova and Forrestania also higher ($3.30-3.70/lb against $2-3/lb at Nova and $9.25-10.25/lb against $7.50-8.50/lb at Forrestania).

But RBC’s Kaan Peker said it was, overall, a strong quarter.

“Greenbushes production has been guided to be ‘marginally above or at the top end of guidance’, which should underpin strong FCF (we currently model top end of guidance),” he said.

“On pricing, the sales price for SC6 will reset quarterly and reference the average price, with pricing guidance for Greenbushes in-line for next quarter, while Kwinana recognised its first commercial sale in December 2022, but ramp up delayed six months.”

IGO (ASX:IGO) share price today:

Gold Road, Silver Lake report gold output

Gold Road Resources (ASX:GOR) says its Gruyere mine will expand to between 340,000-370,000oz in 2023, half of that attributable to its half of the JV with Gold Fields, at costs of $1540-1660/oz.

It comes with the company and its operating partner moving into higher grade stages of the Gruyere open pit.

Production at the mine, 200km east of Laverton in WA’s Yamarna Belt, hit 314,647oz in 2022, with costs of $1447/oz sneaking into the $1270-1470/oz guidance range.

Processing plant availability and delays accessing the high grade parts of the Stage 3 pit saw Gruyere’s output fall QoQ from 83,635oz at $1426/oz in the September quarter to 74,201oz at $1622/oz in the December quarter.

The gold miner intends to spend $30m on exploration in 2023, while it is expecting to be more leveraged to upside in the gold price after closing out a hedge book with prices around $1000/oz below spot levels.

It finished the quarter with $80.8m in cash and equivalents along with $407m in listed investments, which include GOR’s 19.75% stake in potential takeover target De Grey Mining (ASX:DEG), owner of the world class Hemi gold discovery in WA’s Pilbara.

Meanwhile, Silver Lake Resources (ASX:SLR) shares dropped after a tough quarter where gold production came in at 56,900oz gold and 228t copper, with sales of 55,186oz and 211t respectively.

Those came at an average sale price of $2537/oz and all in sustaining cost of $2261/oz including a $137/oz non-cash inventory charge on the treatment of Mt Monger stockpiles.

YTD gold production of 116,835oz gold and 501t copper and sales of 113,979oz gold and 457t copper came in at all in sustaining costs of $2153/oz against an average $2519/oz gold price.

While the Deflector mine performed well, costs continue to remain high at Mt Monger (19,583oz at $2566/oz) and the new Sugar Zone mine in Canada (9822oz at $2773/oz).

SLR has tightened its guidance range to 260,000-275,000oz at $1950-2050/oz, with 50,000oz of gold hedged post quarter’s end at $2840/oz to capitalise on higher gold prices and “de-risk” cash returns of the planned Santa open pit at Mt Monger.

Sugar Zone guidance has been cut from 50,000-60,000oz to 45,000-50,000oz “predominantly associated with manning levels, equipment availability and a prioritisation of site resources to capital projects during the summer/autumn construction window, which has contributed to a shortfall of development advance during H1 FY23, delaying the access of planned stopping fronts.”

It will do little to allay concerns investors may have with the Australian push into North America, where few producers have prospered since the great migration began in earnest a few years ago.